Good morning, and welcome to Air Products' Third Quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Mr. Eric Guter. Please go ahead.

Thank you. Welcome, everyone, to Air Products Third Quarter 2025 Earnings Teleconference. This is Eric Guter, Vice President of Investor Relations. Joining me today are Eduardo Menezes, our Chief Executive Officer; and Melissa Schaeffer, our Chief Financial Officer. After our comments, we will be pleased to answer your questions. Our earnings release and slides for this call are available on our website at investors.airproducts.com. Today's discussion contains forward-looking statements, including those about earnings and capital expenditure guidance, business outlook and investment opportunities. Please refer to the cautionary note regarding forward-looking statements provided in our earnings release and on Slide #2. Additionally, throughout today's discussion, we will refer to various financial measures including earnings per share, operating income, operating margin, EBITDA, the effective tax rate and ROCE either on a total company or segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. Now I'm pleased to turn the call over to Eduardo.

Thank you, Eric. This is Eduardo Menezes. Thank you for joining us. Please turn to Slide 3. The Air Products team delivered solid fiscal third quarter results. Our adjusted earnings per share of $3.09 exceeded our guidance and were higher than last year on a comparable basis excluding the impact of the LNG business sale. We saw positive base business results despite significant global heating headwinds and continue to see positive cost savings across the organization from our productivity actions. Air Products has a solid core industrial gas business with significant potential. The results this quarter show the strength and resilience of our base business. I'm confident we can continue to improve margins and unlock value through systematic cost productivity, pricing and operational excellence. Let me share some examples of how we are executing our productivity commitments. We continue to review and optimize our portfolio. The previously announced global cost reduction plan remains on track and will generate significant savings. Once all actions under the plan are fully executed, we expect to realize annual savings of $185 million to $195 million. Air Products has the lowest SG&A as a percentage of sales in the industry, and we are continuing to improve on this metric. We are investing to bring additional AI and digital transformation tools to the majority of our employees for use in their day-to-day work. I expect the combination of the grassroots projects and large ongoing AI corporate initiatives in areas like energy management will significantly change the way we work and open many new productivity opportunities for Air Products. We are committed to project execution and capital discipline. We expect to finalize the current energy transition projects in line with our previous guidance and to continue investing in growth to build density in our core industrial gas business. We intend to take full advantage of our leading on-site positions in hydrogen and electronics, always through disciplined capital allocation. Now please turn to Slide 4. We presented this slide for the first time last quarter, and I thought it would be helpful to talk about it one more time. This is Air Products' 5-year roadmap to unlock our earnings potential. We have a strong team running the core business, and I'm confident all our leaders are personally committed to taking our products on this journey. Our objective for the next 5 years, starting in fiscal year 2026, is to consistently achieve a high single-digit or better adjusted EPS growth rate, while maintaining or reducing our financial leverage. By doing that and maintaining the capital discipline I mentioned a few times during this presentation, we should achieve operating margins of 30% and ROCE in the mid- to high-teens by 2030. Now I will turn it over to Melissa to discuss our quarter results. Melissa?

Thank you, Eduardo, and good morning, everyone. Please turn to Slide 6 to review our results. Our third quarter adjusted earnings per share of $3.09 exceeded the upper end of our guidance of $2.90 to $3. Compared to last year, sales volume was down 4%, mainly due to the sale of the LNG business last year, lower helium demand and project exits, while partially offset by favorable on-site across the region. The sale of the LNG business drove volume lower by 2%. Total company price was up 1%, which equates to a 2% improvement for the Merchant business. Adjusted operating income was unchanged as strong base business performance, including continued pricing strength in non-helium products across all regions, was largely offset by the sale of the LNG business and exited projects. Adjusted operating margin was flat, but improved about 300 basis points sequentially due to favorable volume and productivity improvements. Now please turn to Slide 7 for the details of our third quarter earnings per share. Third quarter adjusted earnings per share of $3.09 decreased $0.11 from the prior year. This was negatively impacted by $0.14 from the sale of the LNG business and a $0.12 impact from project exits. Without these headwinds, EPS would have improved by $0.15 versus the prior year. Volume added $0.06, benefitting from strong on-site volumes. This volume growth was partially offset by lower helium demand and project exits in the Americas. Price was positive $0.05, driven by strong non-helium pricing actions across all regions. Costs were $0.03 favorable due to productivity and lower maintenance, partially offset by higher depreciation and inflation. The tax rate this quarter was $0.05 unfavorable compared to last year, which benefitted from several one-time items. Interest expense was $0.02 higher, as project exits reduced the interest eligible for capitalization. Now please turn to Slide #8 for an update of our fiscal 2025 guidance. Our fiscal full year adjusted earnings per share guidance is now in the range of $11.90 to $12.10, keeping the midpoint unchanged at $12. We remain cautious in our outlook, recognizing the significant economic uncertainties around the world. Our guidance for capital expenditures stays at approximately $5 billion for the year. We've included additional details on the segment results in the appendix section. Now we will turn the call over for questions.

We'll go first to John Roberts with Mizuho.

Could you give us an update on the plan to use third parties at Darrow for both ammonia and the carbon capture and sequestration?

Yes, we are working to finalize these partnerships by the end of this year. Three months later, I would say we remain reasonably optimistic about achieving this. I've noticed some reports this quarter on other blue ammonia projects in the Gulf Coast. When comparing those reports to the capital expenditures we’ve shared for the size of our plants, I believe our numbers are better in terms of capital expenditure per unit of capacity. We expect this advantage because of our larger scale, which supports the competitiveness of our project regarding capital expenditures. Additionally, I came across a report comparing the cost of blue ammonia in the Gulf Coast to gray ammonia in Europe, which reinforces our belief that the U.S. will be very competitive. Therefore, the fundamentals of our project are still strong. Now, it’s just about securing the right partnerships, finalizing agreements, and negotiating those agreements, which will take some time. We have a dedicated team focused on this, and I am personally involved in many of the meetings. We will share more information with you once it’s available.

We'll go next to Jeff Zekauskas with JPMorgan.

A 2-part question. Your average prices year-over-year were up 1%. If you took out the drag from helium, how much would your average prices have been up? And then secondly, in the past, Air Products used to say that it could dissociate hydrogen from ammonia with a 10% loss, is that a claim that Air Products still wants to make or is the dissociation characteristics different? And do you have to build an infrastructure in Europe in order to fulfill the Total contract in 2030?

Okay. Okay, Jeff, the first question, I'll ask Melissa to talk about that. We normally don't disclose helium numbers, but we can probably give you an idea of the total impact for the year for us in terms of helium. On the second question, yes, the disassociation, we are working in our R&D organization and engineering, designing these plants. At this point, if and when we go forward with any project in Europe to dissociate ammonia, the idea is to use products on technology for that. And at this point, I believe that we still have the same goal in terms of yield that you mentioned—10% losses. It's always a question of capital inefficiency on how much you want to invest to improve your efficiency, and that's exactly where we are, but we are testing a lot of different catalysts and different configurations and trying to be ready to execute these projects when the volumes become more firm. As I mentioned before, all these projects in Europe, they are a function of the final regulation. The EU has its own umbrella regulation, let's put it this way, that each EU member has to develop and adapt this or they call it transposed to law. This is a little late and was supposed to be done a few months ago, but there are several drafts in several jurisdictions, where they present what they are trying to do with the EU legislation. And we and our potential customers and Total, we are all following these regulations to decide where we should build this project. So that's where we are on the ammonia association side, and I'll turn to Melissa to talk about the helium impact.

Sure. Thanks, Eduardo. Thanks for the question, Jeff. So volume and price do continue to fall across the regions. Let me talk about helium as a whole instead of pricing for obvious reasons. So as an order of magnitude for the quarter, helium EPS contributions are down about 4% versus the prior year. For the full year, we're anticipating around a $0.55 to $0.60 headwind from EPS, which again is about 4% to 5%. So obviously, the teams are actively working to balance pricing and volumes to maximize profitability during this down cycle, but it does continue to be a headwind.

We'll go next to John McNulty with BMO Capital Markets.

Maybe digging in a little bit more into the—I believe you said it was $175 million to $185 million cost opportunities. I guess, 2 questions around that. 1, is that in addition to the $100 million opportunity that you would—that Air Products had previously outlined and expected to come in a bit this year and a bit next year? And then can you speak to the heavy lifting of it? It sounds like a lot of it is going to be around digital and energy management and how long or how much effort is this going to take to—is it just kind of a simple drop in or is there some real heavy lifting here?

Yes. So thanks. I will take that question. So let's first talk about the productivity actions we talked about. So this is a total picture of the activities that we've been talking about for the last couple of years. So we continue to execute on productivity actions. That's obviously included in the rightsizing of the organization. This journey will continue as we execute the major projects and reduce our headcount as those projects start to be reduced. Through our rightsizing actions over the last couple of years, we have committed to take about 10% of our headcount out. We're about 60% complete as of the end of this quarter. And some—in order of magnitude, in FY '25, we realized about a $0.40 EPS cost savings versus what was prior to the program initiation and around $0.25 EPS cost savings versus prior year in FY '24. Now associated to the digital energy that Eduardo talked about, this is a program that we are working on. And there will be many programs from an AI perspective that we will be rolling out. As we continue to progress on those, we obviously will be able to update you, but the vast majority of the cost savings we talked about was really associated to the headcount and productivity actions we had previously announced.

Yes. Yes. This is on top of that, things that we're working for the future after this wave of these initial productivity projects.

We'll go next to Vincent Andrews with Morgan Stanley.

This is Steve Haynes on for Vincent. I wanted to ask a question on the volume performance in Americas. Would it be possible to just get a bit more color on the 6% decline there? I guess, how that compared to your original expectation? And I guess, if you could just break it out between base volumes versus any impact from, I guess, some of the project exits?

Yes. Thanks for the question. So from the Americas volume perspective, we actually had strong on-site volumes in our stand-alone assets and the Gulf Coast HEICO. The entire amount of the downturn was largely associated to two things. First, the exited project of World Energy and the prior year contribution; and second, really largely helium demand. We did see improvements in our overall Merchant business outside of the helium demand. So again, underlying strong volumes across our on-site and merchants outside of World Energy and the demand in helium.

Our next question comes from the line of Josh Spector with UBS.

I actually wanted to follow-up on that same question. So I guess if World Energy is the main project exit, I don't know what percent we should assume that is in volume declines? I guess the two pieces there that should we expect kind of a 2%, 3% volume headwind over the next 2 to 3 quarters as a result of that? And is there any income associated with that or is this just a top-line change?

So yes, thanks for the question. So—last year, during this quarter, we had contributions from World Energy of about $24 million. That was a one-time item, and we do not expect this headwind to continue moving forward.

We'll go next to Mike Sison with Wells Fargo.

Nice quarter. In terms of the core business, Eduardo, you mentioned I think in the last call that you still want to invest kind of $1.5 billion in low-risk projects for the core business. Have any update there? I haven't seen any announcements. How is bidding activity going with that? And do you think as we head into '26, that's something that you can sort of hit as a goal?

Yes. We continue to see a lot of project activities on small plants. Those are normally not announcements that we make because the size of the projects. I will probably for the next quarter try to summarize what we did for the year and what we expect in the following years, so you guys can have a better idea of how much of this $1 billion to $1.5 billion goes to smaller plants. In terms of larger-sized plants, we continue to see a lot of activity for electronics in Asia. We are building a lot of plants currently in Taiwan. We see some activities still in China, in South Korea. So that's an area that it's moving forward. We always have some projects in the U.S., considering our large base here to replace or to increase our capacity in both hydrogen and air separation. So that continues to do okay. And again, this is the core of our business. This is the business that our products have started as a company, and we expect that to pick up and increase in the next years. I, as you know, this is my—I'm finishing my first 6 months in the company and traveling around and looking to go into different locations in different countries. And I would say that when you go to Asia and see the capabilities that we have in terms of cryogenic equipment manufacturing and how efficient we are in these areas and how can we bring this equipment all over the globe and be competitive, I think Air Products is in a very strong position. It's probably one of the—or the best facilities that I have seen in my career, and I intend to take full advantage of that.

We'll go next to Patrick Cunningham with Citi.

So Eduardo, you alluded to some of the larger project announcements in the Gulf Coast for blue ammonia. Does this change the dynamic at all for Air Products? I know you mentioned Darrow is cost competitive, but are there now fewer logical equity partners for you and the market is well-served, or do you see it differently?

Well, we'll see. I think the ammonia market is a large market. So we have a lot of people being interested in that. There is some stronger push now for clean ammonia, especially in the Far East, with some bids coming out for the power producers in Japan and Korea looking for clean ammonia. So I think the demand will be there. And on top of that, as I mentioned, I strongly believe that blue ammonia from the U.S. Gulf Coast will be very competitive in Europe. And I think there is room for our project and probably a few more projects.

We'll go next to Matthew DeYoe with Bank of America.

On Slide 4, just—look, within the improved the core/refocus and then kind of achieve potential, right? So you have NEOM as a key driver in 2030 for offsetting underperforming projects and I assume a decent amount of that is the Total agreement starting in 2030. But NEOM is expected to start up in 2027. So I'm just wondering why that is more of a consideration for the 2030 profile?

Yes, the 2030 number comes more from Darrow than NEOM. So NEOM, we also expect the contract that you mentioned to come online in 2030. As I said before, NEOM continues to progress well. We expect to start up in 2027, and we are working as well on placing the product initially as green ammonia, and the green hydrogen will need to wait for the regulation in Europe to follow. So that's where we are. We are also in the same way we're working to commercialize and find partners for Darrow. We're working also on the commercialization of the green ammonia from NEOM starting 2027.

We'll go next to Chris Parkinson with Wolfe Research.

Eduardo, you laid out a helpful breakdown of CapEx a few months ago and just your initial thoughts in terms of all the bars and the projects and how you're thinking about things in the future? I realize it's only been a few months, but is there any update on how we should be thinking about the progress of hitting those targets? It seems like the buy-side community is focusing on getting CapEx somewhere down into the mid-3s, just if there's any thought process there as well as uses for cash in terms of balance sheet and eventually buyback? Just any change of thought process for the last couple of weeks or months?

Thank you, Chris. No, no major updates on that. We continue to follow our what we said before that our intent is to be around cash neutral for the last—the next 3 years. So make sure that we, of course, will maintain our dividends, but we need to balance our cash sources and our cash uses. And we expect to be able to do that in the next 3 years. How well we'll do that, we'll determine other users that we can do with the cash like buy back shares. But at this point, we—first, we're trying to walk before we run. So the priority is to make sure that our CapEx for '26, '27, and '28 matches the cash generation that we have.

We'll go next to Duffy Fischer with Goldman Sachs.

And thanks for the details on helium for this year. But just on that subject of water, you've tracked helium for a lot of years. How do you see the cycle for helium playing out over the next couple of years? How much—just at the current levels, when do we anniversary the level we're at today, like how much is the headwind next year? And do you think this is still kind of a multi-year downcycle or can we stabilize as we get into 2026?

Yes, we have been debating that a lot internally, Duffy, as you can imagine, the helium market—the main question is, is this a helium model cycle or is there a structural change in what happened in the market in the last few years and what will happen in the future, right? So we had a few significant changes in the market. One of them was that the BLM that used to be the largest source and had the capability of managing volume because they have to take the storage for helium. The BLM is becoming less and less of a factor in the market. In fact, it's very minor now. And most of the helium sources now are connected to a natural gas process in LNG plants. And you saw an increase in the supply side. And on the demand side, we've seen some diversification with new players in the industrial gas space and that is changing the way the market operates for the last few years. For the next years, I still believe that the nature of the helium market is not going to change. At some point, you're going to have a crisis, you're going to have a change in LNG demand, you're going to have a war closing plant, a mechanical failure, and you're going to see the pendulum going the other way in the market. And I think products, I said before, try to be a very responsible player in this market. We made an investment on a cabin a few years ago, understanding that we need to have a little more wiggle room to manage our balance of helium. I've seen that others are investing now. I think that's a positive sign for the market. And we'll see some changes in the future. One point that I think you need to take into consideration is that the price increases and decreases in this market take a little time to percolate all the way in the chain to get to the suppliers. But I think that you'll start to see that in this year, and you'll probably continue to see that in the next year. So I expect that going forward, the impact for—in terms of margin is going to be a little less dramatic for all the industrial gas companies because you're going to get also a reduction in the cost of the helium that you purchased from the manufacturers. So it's not an easy situation. I think we are managing that well. Air Products is still making a higher margin than we were making before COVID with a much lower volume. And I think the team has been playing this well managing the volumes in the cabin. But at some point, we need to make sure we stabilize that and we use these volumes. And we'll pull the trigger when we think is the right moment for that.

We'll go next to Kevin McCarthy with Vertical Research Partners.

Eduardo, you've set forth a long-term return on capital employed goal in the mid- to high-teens. And I was wondering, if you could speak to the trajectory from today's level of 10% to that goal? Obviously, there's some short-term friction or volatility as you reshape the portfolio. But when do you think we might turn the corner? And how might you rank order the most important drivers to get those returns higher over the next several years?

Thank you, Kevin. I'll ask Melissa to take this question, and I'll make a comment at the end. Go ahead, Melissa.

Absolutely. Thank you, Eduardo, and thanks, Kevin, for the question. So as you saw this quarter, our ROC is around 11.1%, which is down versus the prior quarter. This is largely the significant construction process that we have. So ex-NEOM, obviously, that would improve greatly. So we did see a 4 quarter trailing after-tax return that went down a little bit due to the headwinds from helium and our canceled projects. That was coupled, obviously, with higher debt and lower deferred income tax driven by our cancel projects. So that's providing some of the headwinds. Without CIP and cash, our ROC would actually be up about 500 basis points. So as we see the CIP reduce and our cash balances obviously increase, as we become more disciplined on our capital allocation, our ROCE will improve. We've given you the forecast over the next 5 years. I fully anticipate that we should be able to meet and beat that. And as I said, the reduction in the capital outlay will help that greatly.

Yes. So a lot of influence from construction progress on the numbers. A little complicated accounting here because we consolidate NEOM 100% at this point, that will be the consolidated start-up. But Melissa and the team has calculations in the background, and we are pushing hard to get this ROC to mid-teens by 2030.

We'll go next to Lars Alexander with Jefferies.

This is Dan Rizzo on for Lawrence. In your opening remarks, you mentioned inflation being somewhat of a headwind. I was just wondering what exactly that is and what you expect going forward in terms of costs?

We continue to see inflation all over. As we all know, the situation of tariffs is not very clear, to say the least. We're trying to manage that the best way we can. It is always a function of how well we also manage our pricing. So you have just to stay ahead in the race between price and inflation, and that's a battle that we fight every day. But inflation has been a concern. The tariffs will impact at some point more than one we expect. Our business is directly not affected that much, but our customers are, and sometimes our suppliers are, and that's the source of inflation we see.

We'll go next to James Hooper with Bernstein.

I think we've touched on NEOM and Darrow, but can we have an update on the other underperforming projects in Edmonton, Rotterdam, Arizona? And these are meant to come online in the next couple of years. Is there any way that these can be delayed? Or do you think those—should you not be able to get the demand or offtake? Or these data set?

Yes. These are all projects that have schedules for 3 years or more. So not a lot of things change in 3 months. So our forecast in terms of capital and schedule are still the same that we provided you last quarter. So if there are changes, we'll come back to you. But at this point, what we presented before is exactly where we are in terms of CapEx and schedule.

And one incremental comment: The projects that you talked about, the Edmonton project and our assets in Rotterdam, those are underpinned by customers. So that—those are a little bit of a different flavor than our NEOM and Louisiana projects.

This concludes the question-and-answer portion of today's call. At this time, I would like to turn the call back over to Eduardo for any additional or closing remarks.

Thank you. I would like to, again, thank everyone for joining our call today. We appreciate your interest in Air Products, and we look forward to discussing our results with you again next quarter. All the best, and have a great day. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.